The Social Security Trustees report is tell us not to worry so much. If you read between the lines you will understand that;
Social Security and Medicare are not bankrupt!
Here is the 31 page Trustees summary report if you’re inclined to read it.
And here is the 270 page FULL report too.
Social Security actually consists of two aspects: Old Age and Survivors Insurance (OASI) and Disability Insurance (DI).
OASI is the RETIREMENT benefit you receive as a Social Security recipient.
DI is the income you receive when you’re disabled.
For Medicare there is Hospitalization Insurance (HI) and Supplementary Medical Insurance (SMI).
HI is better known as Part A. It is the “free” part that Medicare beneficiaries receive in that there are no premiums.
The Part B and D part of Medicare fall under the label SMI, Supplementary Medical Insurance.
“Part B helps pay for physician, outpatient hospital, home health, and other services for the aged and disabled who have voluntarily enrolled.”
“Part D provides subsidized access to drug insurance coverage on a voluntary basis for all beneficiaries, as well as premium and cost-sharing subsidies for low-income enrollees.”
So, now that we know a bit more about the various aspects of Social Security and Medicare how is its financial strength?
According to the report, when it comes to Social Security what we find is this:
“(In 2035) scheduled tax income is projected to be sufficient to pay about three-quarters of scheduled benefits through the end of the projection period in 2092.”
When it comes to Medicare:
“The Trustees project that the HI Trust Fund will be depleted in 2026, three years earlier than projected in last year’s report. At that time dedicated revenues will be sufficient to pay 91 percent of HI costs.”
“For SMI, the Trustees project that both Part B and Part D will remain adequately financed into the indefinite future because current law provides financing from general revenues and beneficiary premiums each year to meet the next year’s expected costs.”
Thus, It is quite apparent from the Trustees report that neither Social Security, which covers retirement and disability income for beneficiaries, nor Medicare which covers health insurance, are doomed to the ash heap of history.
Are they fully financed? No. And that means there could be reductions of around 25% of expected benefits in 20 years for Social Security and Medicare Part A. But NOT Part B and D! Those are adequately funded.
Should you then NOT use Social Security and/or Medicare in your financial planning projections? Well, only if you want your projections to be wrong and not worth the electronic paper it’s written on, which would be silly.
In my next email, I’ll share why you SHOULD be using Social Security in your planning especially when it comes to the taxes you’ll pay in retirement.